Dollar value over time

Determining the relative value of an amount of money in one year (the initial year) compared to another (the desired year) is more complicated than it seems at first. There is no single "correct" measure, and economic historians use one or more different index depending on the context of the question.

An index such as the Consumer Price Index is measured as the price of a "bundle" of goods and services that a representative group buys or earns. Over time the bundle changes; for example, carriages are replaced with automobiles, and new goods and services are invented such as cellular phones and heart transplants.

These considerations do not stop the fascination with these comparisons or even the necessity for them. For example, such comparisons may be critical to determine appropriate levels of compensation in a legal case that has been deferred. The context of the question, however, may lead to a preferable measure other than the real price (real wage, or real cost) as measured by the Consumer Price Index (CPI), which is used far too often without thought to its consequences.

Therefore, when talking about the (relative) worth of an item, it should be categorized as a commodity, a project, or an observation of compensation or wealth. Then (and only then) should it be measured relative to well-defined indexes of economic activity that put the item in perspective. This process will generate specific definitions of relative worth that depend on the index used and the type of item it is.

The Seven Indexes Used

Definitions of Relative Worth

The definitions of relative worth presented here are computed using the ratio of the change in the indexes listed above. Your initial amount is multiplied by the observed value of each index from the desired year divided by the observed value from the initial year. The best measure of the relative worth over time depends on the type of thing you wish to compare. (click on each to get its definition.)

If you are looking at a Commodity, then the best measures are:

Economic Share

Economic Share is the worth of a commodity in a particular time period divided by GDP; it is its share of total output. This is helpful in measuring the relative value of aggregate consumption items such as all the cars made in a year.

If you are looking at an Income or Wealth, then the best measures are:

Real Wage or Real Wealth

Real Wage or Real Wealth measures the purchasing power of an income or wealth by its relative ability to buy a (fixed over time) bundle of goods and services such as food, shelter, clothing, etc. This bundle does (in theory) not change over time. This measure uses the CPI.

Household Purchasing Power

Household Purchasing Power is measured as the relative cost of a bundle of goods and services such as food, shelter, clothing, etc., that an average household would buy. This bundle has become larger as households have bought more over time. This measure uses the Value of the Consumer Bundle, which is only available after

Relative Labor Earnings

Relative Labor Earnings measures an amount of income or wealth relative to the wage of the average worker. This measure uses one of the wage indexes.

Relative Income

Relative Income measures an amount of income or wealth relative to per capita GDP. When compared to other incomes or wealth, it shows the economic status or relative "prestige value" the owners of this income or wealth because of their rank in the income distribution. This measure uses GDP per capita.

Relative Output

Relative Output The ratio of income, compensation or wealth to GDP provides a sense of the share of the economy it represents, the amount of what we call the relative output it commands. Many believe that the rich have access to political favors that are denied to the average person. In that sense, their income and wealth relative to the output of the economy is a measure of their economic power.

If you are looking at a Project, then the best measures are:

Real Cost

Real Cost of a project is measured by comparing its cost to the cost index of all output in the economy. This measure uses the GDP Deflator.

Household Cost

Household Cost is the cost of a project relative to the amount the average household spends annually on consumer goods and services. The project may pertain either to business/government, a person/household, or to a nonprofit institution. This measure uses the Value of the Consumer Bundle, which is only available after

Labor Cost

Labor Cost of a project is measured as a multiple of the average wage of the workers that might be used to build the project. This measure uses one of the wage indexes.

Economy Cost

Economy Cost of a project is measured as the cost of the project as a percent of the output of the economy. This measure indicates the opportunity cost in terms of the total output of the economy. It can be interpreted as the importance of the item to society as a whole. This measure uses the share of GDP.

Here Are Some Examples

How does George Washington's salary compare today?

George Washington was paid a salary of $25, a year from to as the first president of the United States. The current salary of the president is now $,, to go with a $, expense account, a generous pension and several other benefits. Has the remuneration improved?

Making a comparison using the CPI for shows that $25, corresponds to about $, today, so current presidents do not have an equal command over consumer goods as the Father of the Country. (0f course, Washington had to travel by horse drawn carriage, not helicopters or Air Force One.)

When comparing Washington's salary to an unskilled worker, or the measure of average income, GDP per capita, then the comparable numbers are $15 to $37 million. Granted that would not put him in the ranks of the top 25 executives today that make over $ million. It would, however, be many times more than any elected official in this country is paid today. Finally, to show the "economic power" of his wage, we see that his salary as a share of GDP would rank him equivalent to $ billion.

The Erie Canal

The Erie Canal was built between and for a price of $7 million. This waterway is regarded as one of the most important investments in the nineteenth century as it opened the Midwest to trade and migration. How does its cost compare to what its cost would be today?

Using the GDP deflator for shows that it would be $ million, not more than the cost today of a few miles of Interstate highway. Using the unskilled wage measure the cost is $ billion. From a historical point of view, this may be the best measure as most of the cost of building the canal was probably unskilled labor. Using the manufacturing workers index gives us a much higher cost of $ billion.
Using the GDP per capita, the cost is close to $ billion, and as a share of GDP, it comes in close to $ billion. As a comparison the current budget of the U.S. Department of transportation is $70 billion.

Because of the volatility of prices in that period, if we had chosen instead of , the GDP deflator computations would have been about 22% less and the other measures are different by similar magnitudes as well. This is a good example of how "approximate" these comparisons are.

Slavery in the United States

Slavery in the United States was an institution that had a large impact on the economic, political and social fabric of the country. The average price of a slave in was $ and the economic magnitude of that price in today's values ranges from $19, to $,, depending on the index used.

In that year, there were an estimated four million slaves living in the South and it is estimated that their aggregate market value was over $3 billion then. That corresponds to $10 trillion today (as a share of GDP).

For a discussion of these issues, see Measuring Slavery in Dollars.

The Civil War

• The Civil War was one of the most devastating events in the history of the United States. It lasted from to and has been estimated to have a direct cost of about $ billion valued in dollars. If this number were evaluated in dollars of today using the GDP deflator it would be $ billion, less than one-fourth of the current Department of Defense budget. This would be inappropriate, as would be using the wage or income indexes. The only measure that makes sense for an expenditure of this size is to use the share of GDP, as the war impacted the output of the entire country. Thus the relative value of $ billion of would be $ trillion today, or over % of our current GDP.

  The $ billion does not take into account that the war disrupted the economy and had an impact of lower production into the future. Some economic historians have estimated this additional, or indirect cost, to be another $ billion measured in dollars. This means the cost of the war (as a share of the output of the economy) was nearly $68 trillion as measured in current dollars.

The Model T Ford

The Model T Ford cost $ in ; however, by the price had fallen to $ How do we compare these values? If you wanted to compare the two years you would see that by using the CPI, the GDP deflator or the consumer bundle, $ in is equivalent to a value between $1, and $1, in . Using the wage index we see that the labor cost (of the car in wages) was $2, and by using the GDP per capita index it was $1, Thus in the $ was less than 20% of its cost in using the price indexes and only 11 to 14% using the wage indexes and 15% using the GDP per capita.

If we wanted to consider the costs of the Model T using today's prices we would find that the $ cost in is $23, in today's prices using the CPI, $16, using the GDP deflator, about $44, using the consumer bundle, $, using the unskilled wage, $, using the manufacturing compensation, and $, when comparing using the GDP per capita. At this point the Ford was a luxury for most everyone.

The $ in , on the other hand, would be only $4, in today's prices using the CPI, $3, using the GDP deflator, $7, using the consumer bundle, $14, using the unskilled wage, $18, using the manufacturing compensation, and $21, when comparing using the GDP per capita. By then, the ford was an automobile affordable by all.

Babe Ruth

Babe Ruth signed a contract on March 10, with the American League Base Ball Club of New York (The Yankees) to play baseball for the next two years at an annual salary of $80, In , the CPI was 16 times larger than it was in , and the GDP deflator was 13 times larger. This means that if we are interested in Ruth's purchasing power of housing or meals, then he was "earning" the equivalence of about $1,, today.

In , the average consumer unit spends about 32 times in dollars more than it spent 82 years earlier. Thus, if we want to compare Ruth's earnings using the index of what the average household buys, it would be over $2,, today. The relative cost of labor is 48 times (unskilled) and 63 times (manufacturing production workers) higher in than in So if we wanted to compare his wage to what someone selling hot dogs would earn, we could say his "relative wage" is four to five million.

GDP per capita and GDP are 95 and times larger in than they were in Thus, Ruth's earnings relative to the average output would be $7,, today. Finally, as a share of GDP, Ruth's "output" that year would be $20,, in today's money.

Putting a man on the moon

Putting a man on the moon: in March of ) NASA told Congress the "run-out cost" of the Apollo program (to put men on the moon) would be an estimated $ billion for the 13 year program that accomplished six successful missions of putting astronauts on the moon between July and December ( http://www.hq.nasa.gov/office/pao/History/SP/keyev4.htm) According to Steve Garber, NASA History Web Curator, the final cost was between $20 and $25 billion.

How much would that be today? If we used the CPI, it would be $ billion, but this would not be a very good measure since the CPI does not reflect the cost of rockets and launch pads. Using the consumer bundle would not be relevant either. Using the broader based GDP deflator gives a present cost of $ billion. An alternative would be to use the production worker index as a rough measure of the labor cost in current terms and that would be $ billion. By using the GDP per capita, we are measuring the cost in terms of average product and would get a number of $ billion. Finally, a way to consider the "opportunity cost" to society, the best measure might be the cost as a percent of GDP, and that number would be $ billion. This amount over thirteen years would be $40 billion per year. As a comparison, the NASA budget for the current fiscal year is approximately $19 billion.

The 'real' price of gasoline

The "real" price of gasoline: Gasoline cost 22 cents a gallon in compared to around $ today (Oct,) How has the relative cost of buying gas changed over the last 90 years? Presented here are two tables computing the annual "real" cost using our seven indexes, one in dollars, and the other in dollars. While the two tables show the same trends, they do give a different perspective.

Using the table and the CPI and the GDP deflator, we see that gasoline was quite expensive in and it was the cheapest in In , the real price using these two measures is 30% to 50% higher than the decade of the s.

By looking at the share of the Consumer Bundle and GDP per capita, the story is a bit different. In , the “real” price of Gasoline was $ using the CPI, however, a gallon of gas took as much out of what the average consumer spent as $ did in And as a share of GDP per capita, gas was even more expensive in those earlier days as it was over $ in and as much as $ in

The other table tells the story in a different way. Let us look at relative cost to a worker to fill up using dollars. That year the 21 cents it cost for a gallon of gas, took a certain share of the worker's wage. The interesting question is, has the cost as a share or percent of the worker's wage increased or decreased over time? The table shows that for the two wage rates and price of gasoline in other years, this cost has fallen. Since wages have increased faster than the price of gasoline, by an unskilled worker spends less than one-fifth as much, as a percent of wages, for a gallon of gasoline than the worker. For a production worker it is a little more than a quarter. The table shows that the $ a worker paid in would be comparable to only 3 to 5 cents (in prices "share" of the wage.)

When we use the GDP per capita, the cost has fallen faster. Looking at the table shows that a gallon of gasoline today costs around 3 cents a gallon (in prices) if measured as a "share" of the GDP per capita. This is because in , 21 cents was % of per capita GDP, while in , $ was %.

Finally, comparing its cost as a share of GDP, we see that for (in prices), it is about 1 cent. This means that a gallon of gasoline was over 21 times larger as a share of output in than it is today.

Price is for Regular Leaded Gasoline until and for Regular Unleaded Gasoline thereafter.
Source for Gas prices.

Citation

Samuel H. Williamson, "Seven Ways to Compute the Relative Value of a U.S. Dollar Amount, to present," MeasuringWorth,

URL: www.measuringworth.com/uscompare/

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Please let us know if and how this discussion has assisted you in using our comparators.

Charting the Continued Rise of Remote Jobs

When the pandemic first took hold in , and many workplaces around the world closed their doors, a grand experiment in work-from-home began.

Today, well over a year after the first lockdown measures were put in place, there are still lingering questions about whether remote work would now become a commonplace option, or whether things would generally return to the status quo in offices around the world.

New data from LinkedIn&#;s Workforce Report shows that remote work may be here to stay, and could even become the norm in a few key industries.

Broadly speaking, 12% of all Canadian paid job postings on LinkedIn offered remote work in September Prior to the pandemic, that number sat at just %.

While this data was specific to Canada, the country&#;s similarity to the U.S. means that these trends are likely being seen across the border as well.

Which Industries are Embracing Remote Work?

The nature of work can vary broadly by job type—for example, mining is tough to do from one&#;s living room sofa—so remote jobs were not distributed equally across industries.

Here are the numbers on job postings that were geared towards remote work:

Tech and healthcare industries are showing big shifts towards remote work, with the latter being influenced by a number of tech-driven changes, including telemedicine.

Physical distancing measures forced some industries to pivot quickly. Whether virtual fitness and wellness options (e.g. Peloton and Headspace) would remain popular beyond the pandemic was a big question mark, but this jobs data seems to indicate continued digital growth in these industries.

What the Future Holds

Since COVID outbreaks are still underway, the true test for this trend will be whether these numbers hold up a year or two from now. When offices and gyms are reliably open again, will companies dial back the work-from-home options?

Today, hybrid solutions are proving popular amidst worries that fully distributed teams suffer from lower levels of collaboration and communication between colleagues, and that innovation could be stifled by lack of in-person collaboration.

Of course, employees themselves are reporting being more productive and happy at home, with 98% of people wanting the option to work remotely for the rest of their careers.

It&#;s clear that the culture of work is undergoing an evolution today, and companies and employees will continue to seek the perfect balance of productivity and happiness.

Where does this data come from?

Source: LinkedIn&#;s Workforce Report for September (Canada)
Data Note: LinkedIn analyzed hundreds of thousands of paid remote job postings in Canada posted on LinkedIn between February and September 21, A “remote job” is defined as one where either the job poster explicitly labeled it as “remote” or if the job contained keywords like “work from home” in the listing.

Value of $1 from to

$1 in is equivalent in purchasing power to about $ today, an increase of $ over years. The dollar had an average inflation rate of % per year between and today, producing a cumulative price increase of 2,%.

This means that today's prices are times higher than average prices since , according to the Bureau of Labor Statistics consumer price index. A dollar today only buys % of what it could buy back then.

The inflation rate was %. The current year-over-year inflation rate ( to ) is now %¹. If this number holds, $1 today will be equivalent in buying power to $ next year. The current inflation rate page gives more detail on the latest inflation rates.

⌃

Data Source & Citation

You may use the following MLA citation for this page: “$1 in → | Inflation Calculator.” Official Inflation Data, Alioth Finance, 13 Oct. , https://www.officialdata.org/us/inflation/?amount=1.

Special thanks to QuickChart for their chart image API, which is used for chart downloads.

About the author

Ian Webster is an engineer and data expert based in San Mateo, California. He has worked for Google, NASA, and consulted for governments around the world on data pipelines and data analysis. Disappointed by the lack of clear resources on the impacts of inflation on economic indicators, Ian believes this website serves as a valuable public tool. Ian earned his degree in Computer Science from Dartmouth College.

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Inflation Calculator

Photo credit: © iStock/Newbird

Inflation is the increase in the prices of goods and services across an economy. When prices inflate, you need more money to buy the same things. The opposite of inflation is deflation, when prices become lower across a range of goods and services. Inflation is an important concept for investors to understand because it eats into your returns on your investments.

The Inflation Rate Defined

To measure the inflation rate, you can't just take a single good and measure how its price changes. You have to look at what's called a "basket" of goods and services. In the U.S., inflation rates come from the Consumer Price Index (CPI). The CPI takes what the government considers a representative basket of goods and services and records changes in their prices from month to month and year to year.

Historical Inflation Rates

While many countries have battled inflation and even hyperinflation in the past years or so, the U.S. has largely avoided that fate. Average annual inflation in the U.S. between and was %.

If you look at a table containing the inflation rate from to , you'll notice deflation (expressed as a negative inflation percentage) during the Great Depression. You'll also notice significant inflation in the '70s and early '80s. In general, though, the Federal Reserve moderates inflation to keep it around the 2% mark. In other words, you don't need to worry that you'll be carrying suitcases full of dollar bills to the grocery store any time soon.

One of the privileges of living in a developed country in this day and age is a certain amount of confidence that inflation rates will stay within a reasonable range. The inflation rate from to was just %.

How Inflation Impacts You

If your income stays the same while prices go up, you'll feel the effects of inflation. Your money won't stretch as far and you'll have to make some changes to your budget. In theory, salaries and wages should rise to keep up with inflation so that workers can maintain their standard of living. Social Security benefits, too, are subject to Cost of Living Adjustments (COLAs) that take rising prices into account.

If your income rises by the same percentage as the inflation rate, your purchasing power is not diminished. It doesn't grow or shrink. If your income rises by a percentage greater than the inflation rate, you'll be able to afford more goods and services. This is the scenario most of us want. It makes us feel better to see our purchasing power growing over time.

Of course, if your income shrinks or disappears, you might be in trouble. Other people who feel the negative effects of inflation are those on a fixed income, or those who hold fixed-income investments while inflation takes its toll on their purchasing power.

For example, if you buy a fixed-income security like a CD with a 2% yield and inflation rises to 4%, you're losing money. In an environment where interest rates are low, it can be tough to beat inflation without buying stocks. Bonds, CDs and savings accounts will keep your principal intact but won't necessarily grow enough to keep pace with inflation. That means you're less likely to meet your retirement savings goals. Fortunately, an inflation calculator can help you figure out a target for your retirement investments in future dollars.

Although stocks bring risk and volatility, they also have a track record of providing inflation-beating returns over time. Investing in stocks not only helps you grow your retirement savings, but it also helps your retirement savings last throughout your entire retirement. It's important to have enough retirement savings that you won't be up all night worrying about inflation.

Once you're retired and out of the workforce, if your retirement nest egg isn't growing, there's not much you can do to preserve your purchasing power if inflation hits. That's why our retirement calculator takes inflation into account when figuring out how much you should save for your golden years.

Get Real

Photo credit: © iStock/kutaytanir

When you see the word "real" used in relation to finance, it means "adjusted for inflation." So if you hear that "real wages" aren't rising, it means that wages aren't rising above inflation. Same with the "real" increase in home prices over time. There's often a big difference between what you see before and after adjusting for inflation.

An inflation calculator shows you the value of the same sum of money at different times in the past and the future. It can tell you about historic prices and future inflation. Estimates of future prices and values are usually based on projections using the average inflation rate - essentially an expected inflation calculator.

Wondering how to calculate the inflation rate in a given year? The CPI helps, but it only goes as far back as To find the historic inflation rate in, say, , analysts take a current price index and then subtract a comparable price index based on data from They then divide that number by the index and multiply by to get a percent. The formula for calculating inflation is: (Price Index Year 2-Price Index Year 1)/Price Index Year 1* = Inflation rate in Year 1.

As we mentioned, future inflation calculators generally base their projections on recent averages. In the U.S., where inflation volatility hasn't been a problem lately, it's pretty safe to assume that future inflation will hover around %. A future inflation calculator lets you see how many future dollars will equal a certain number of today's dollars. Sometimes you can even adjust the inflation rate to see what would happen to your purchasing power if there were extreme inflation or deflation.

Bottom Line

If your investments aren't providing returns equal to or greater than the inflation rate, you're probably in trouble. You'll find yourself making tough choices about what you can afford as inflation eats into your purchasing power. In other words, investors should count on inflation and plan accordingly.

Preparing for retirement by stashing your savings under your mattress won't cut it if you want to maintain or improve your standard of living. You should consider all investments, among other things, based on their ability to provide inflation-beating gains. The fact that Social Security benefits automatically adjust for inflation is part of what makes them such a powerful resource for retirees. Now that you know about inflation, you can start working on strategies for beating it.

Places with the Least Inflation

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* Prices do not include sales tax.

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The impact inflation has on the time value of money is that it decreases the value of a dollar over time. The time value of money is a concept that describes how the money available to you today is worth more than the same amount of money at a future date.

This also assumes you do not invest the money available to you today in an equity security, a debt instrument, or an interest-bearing bank account. Essentially, if you have a dollar in your pocket today, that dollar’s worth, or value, will be lower one year from today if you keep it in your pocket.

Inflation increases the price of goods and services over time, effectively decreasing the number of goods and services you can buy with a dollar in the future as opposed to a dollar today. If wages remain the same but inflation causes the prices of goods and services to increase over time, it will take a larger percentage of your income to purchase the same good or service in the future.

Here’s a chart of the inflation rate from the late s to today. Notice that since the s, the rate of inflation has been positive for nearly every year.

So, for example, if an apple costs $1 today, it's possible that it could cost $2 for the same apple one year from today. This effectively decreases the purchasing power of money over that period, since it will cost twice as much to purchase the same product in the future. To mitigate this decrease in the time value of money, you can invest the money available to you today at a rate equal to or higher than the rate of inflation. Consider the chart below, which lays out the buying power of $ from to today. So, in the example above, if we had $ in apples in , those same apples would cost over $2, today.

What Impacts Inflation?

Basically, inflation is caused by a rise in the price of goods or services. Now, that is driven by supply and demand. Holding all else constant, a rise in demand can push prices higher (if the supply of goods and services is stable), while a supply reduction can also drive higher prices.

Demand can rise because consumers have more money to spend. More spending increases inflation, in particular, higher consumer confidence. When wages are steady or rising, and unemployment is relatively low, inflation is likely to rise. As well, manufacturers are likely to raise prices if consumers are willing, or capable, of spending more.

Then there’s the supply side. Lower supply can drive down demand, pushing prices higher. A decline in supply can happen for a number of reasons, such as disasters that disrupt the supply chain or manufacturers’ capabilities. Or assuming an item turns out to be very popular, it can sell out quickly, such as the case with iPhones

The Federal Reserve and Inflation

One of the Federal Reserve’s chief responsibilities is to monitor and control inflation. The Fed aims to keep the inflation rate around 2%. The Fed manages inflation in one of three ways—Federal funds rate, reserve requirements and, money supply reduction.

The Fed funds rate is the rate at which banks can borrow money from the government. To help curb rising inflation, the Fed will increase rates, which inherently increases interest rates charged by banks. This helps slow spending and forces prices lower, helping keep inflation in check.

Then there is the reserve requirement, which is the amount capital banks must keep on hand. To curb spending and inflation, the Fed can increase the reserve requirement, which decreases the amount of money banks have available to lend. Finally, there’s money supply, which involves the Fed directly influencing the amount of money in circulation by issuing or calling in bonds, which helps reduce the amount of money in circulation.

The Fed measures inflation by monitoring and tracking various indexes, specifically, price indexes that track price changes of particular goods and services. The main index used by the Fed includes the personal consumption expenditures index that’s put out by the Department of Commerce. The PCE index has a variety of goods and services that are part of household spending, but it does consult other indexes, such as the Department of Labor’s consumer price and producer price indexes.